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Appfolio Reporting NOE Calculation Confuses Negative and Positive Deviations
Accurate financial reporting plays an important role in evaluating performance and making informed decisions. Appfolio, a popular property management software, offers various reporting metrics such as Net Operating Income (NOI), Net Income (NI), and Net Income - Total Non-Operating Expenses (NOE). However, it has been observed that Appfolio sometimes confuses negative and positive variances when calculating these metrics. This blog post examines the issue of Appfolio's confusing deviations and discusses their potential impact on accurate financial reporting.
Understanding NOIs, NIs and NOEs:
Before jumping into the challenge of calculating NOI, NI, and NOE using Appfolio, let's briefly define these metrics and what they mean.
1. Net Operating Income (NOI):
NOI represents the income a property generates after deducting operating expenses and before non-operating expenses such as interest and taxes are taken into account. It is an important indicator of a property's profitability and operational efficiency.
2. Net Income (NI):
Net income reflects a company's total profit after deducting all expenses, including operating and non-operating expenses, from sales. Provides an overview of the company's overall profitability.
3. Net Income - Total Non-Operating Expenses (NOE):
NOE is a form of net income that specifically focuses on deducting non-operating expenses such as interest expense, taxes and investment gains/losses from net income. By excluding non-operating factors, you get a clearer picture of your company's operating profitability.
Challenge:
Confusion caused by discrepancies in Appfolio reports:
Appfolio's reporting system can have problems handling negative and positive deviations when calculating NOI, NI, and NOE. These variances are the difference between the expected or budgeted value and the actual value for a particular income or expense category.
Possible impact:
Confusion due to discrepancies in Appfolio reports can lead to inaccurate financial insights and an inaccurate representation of a company's financial health. Possible effects are:
1. Inconsistent NOI calculation:
Confusion between applifolio and variance can lead to misclassification of variance when computing NOI. Negative variances that indicate lower than expected revenues or higher than expected expenses can be incorrectly treated as positive variances. This misreading can distort NOI figures and distort perceptions of a property's profitability.
2. Wrong net income figures:
When working with positive and negative deviations in NI calculations, Appfolio's reporting system may unintentionally reverse the sign of these deviations. A positive variance that indicates higher than expected revenue or lower than expected spending can be misinterpreted as negative and vice versa. As a result, reported NI figures may not accurately reflect our actual profitability. 3. Incorrect NOE rating:
Confusion due to discrepancies in Appfolio's reporting can extend to NOE calculations. Negative variances that may result in higher than expected non-operating expenses can be incorrectly treated as positive variances. As a result, NOE figures can be falsely inflated and obscure a company's true operating profitability.
Eliminate confusion and ensure accurate reporting.
To ensure accurate financial reporting when using Appfolio, please consider the following measures:
1. Manual verification:
Regularly review and validate NOI, NI, and NOE calculations by manually inspecting the differences, their signs, and the categories of income and expenses involved. Make sure Appfolio accurately considers negative and positive differences.
2. Use the absolute value when dealing with MTD and YTD variances.